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ACEApril 30, 20244 min read

ACE Reaction to New 40B GREET Model for SAF Tax Credit

Today, the U.S. Treasury Department released a highly anticipated update to the Department of Energy’s Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET) model, providing guidance on how feedstocks like corn ethanol could qualify for the production of sustainable aviation fuel (SAF) under the 40B tax credit of the Inflation Reduction Act (IRA). Under 40B, SAF with lifecycle greenhouse gas (GHG) emissions at least 50% cleaner than conventional jet fuel qualifies for the tax credit if sold prior to January 1, 2025. The value of this credit is determined on a sliding scale, equal to $1.25 plus an additional $0.01 for each percentage point by which the lifecycle GHG emissions reduction exceeds 50%.

The new 40B GREET model announced today will recognize GHG reductions from carbon capture and sequestration (CCS), renewable natural gas, and renewable power used to produce ethanol for qualifying SAF and include a “safe harbor” pilot program for corn ethanol produced with bundled climate-smart agriculture (CSA) practices. Treasury also announced it will develop pathways for ethanol from CSA practices under the 45Z clean fuel production tax credit set to go into effect on January 1, 2025.

American Coalition for Ethanol (ACE) CEO Brian Jennings issued the following reaction upon initial review:

“The Biden Administration is providing an important tailwind for corn ethanol produced with no-till, cover crops and enhanced efficiency fertilizers to qualify as a feedstock for SAF under 40B so long as all three of these climate-smart agriculture (CSA) practices are adopted. This marks the first time a regulatory body has formally acknowledged the role CSA practices play in reducing corn ethanol’s GHG emissions, in this case enabling some ethanol-to-jet to qualify for the 40B credit.

“The United States Departments of Agriculture (USDA) and Energy (DoE) deserve praise for diligently ensuring this first step is being taken with respect to CSA practices. ACE is particularly grateful to U.S. Secretary of Agriculture Vilsack for successfully advocating that corn ethanol is part of the solution to fulfill the Biden Administration SAF goals and for his leadership on CSA pathways for corn ethanol under the new 45Z credit.

“We are very encouraged the 40B GREET determination of indirect effects, including the land use change (LUC) penalty for ethanol-to-jet, was driven by science rather than arbitrarily inflated estimates which do not reflect real-world observations of land use and conversion. While today’s announcement is a step in the right direction, corn farmers and ethanol producers will face headwinds to produce qualifying corn ethanol feedstock for SAF given the all or none requirement to bundle CSA practices.

“With the 2024 planting season underway and the expiration of the 40B credit on December 31, 2024, Treasury’s SAF guidance speaks more to the Administration codifying the important role CSA practices play in decarbonizing liquid fuels than the amount of ethanol-to-jet that will qualify for the 40B credit. Today’s announcement provides ACE a roadmap for how to prevent the conditions placed on CSA practices in 40B from being applied as 45Z is implemented. Ultimately, we need to enable farmers and ethanol companies to recoup value from these tax credits for their investments to reduce GHG emissions.

“We look forward to continued engagement with Treasury, USDA and DoE with respect to how the GREET model will apply to 45Z, which will not require bundling of CSA practices. We also appreciate the need to provide these agencies with irrefutable justification of the GHG benefits of CSA practices. That is why the ACE-led and USDA-funded Regional Conservation Partnership Program (RCPP) projects are critically important; they will generate scientifically significant datasets of the GHG reduction benefits of CSA practices used to produce ethanol in various regions across the country so the full GHG value of these CSA practices can be reflected in future iterations of the GREET model and be used by ethanol producers to obtain 45Z tax credits. ACE will proactively leverage our RCPP projects to fine-tune how CSA practices are scored and rewarded, and capitalize on our work with farmers to ensure commonsense monitoring, measuring, verification and reporting requirements (MMVR) for biofuel producers and farmers.”

45Z is a technology-neutral tax credit for transportation fuel used in a highway vehicle or aircraft produced and sold between 2025 and 2027. Credit values are based on the GHG emissions of the fuel compared to a baseline of 50 kilograms CO2 equivalent/mmBTU. The statute specifies use of the GREET model to determine the GHG emissions for nonaviation fuel. The value of 45Z is $0.02 cents per gallon for each carbon intensity point under 50 kg CO2e/mmBTU.

In February, ACE sent a letter to members of the SAF Interagency Working Group (IWG) stressing the importance of GHG credits for climate-smart agriculture practices when updating the GREET Model for SAF lifecycle GHG emissions under Section 40B of the IRA. Accompanying ACE’s letter was an analysis prepared by Ron Alverson of the ACE board of directors comparing modeled estimates of land use change (LUC) to what has occurred in the real world.